Following the publication of the draft in 2019, on Wednesday the Union Cabinet approved the Model Tenancy Act (MTA) model. This will simplify the rental process in India and help the rental economy in the real estate sector.
According to the government, the law will help reform the legal framework for rental housing throughout the country, which will contribute and improve the overall economy growth.
What’s the purpose of this law?
According to the 2011 census, more than 1 crore of houses were empty in urban areas. Existing rent control laws had restricted the growth of the rental housing sector. Also homeowners avoid renting their homes due to fear of repossession. One of the possible steps to unlock the vacant house and to remove fear of homeowners is to bring transparency and accountability into the existing system for renting premises. While considering the interest of both homeowner’s and the tenant’s in a balanced manner.
The Model Tenancy Act 2021 seeks to create a sustainable, dynamic, and cost-effective rental housing market. The law will institutionalize rental housing, progressively move it towards the formal market and is aimed at meeting the demand of both owners and tenants. The Act also promotes the opening of houses that have been untenanted for several years.
How does Modern Tenancy Act benefit tenants?
- Limit the security deposits:- The tenants have to pay at least one year’s rent as security deposit in cities like Bangalore and Mumbai. However with the new Act homeowners cannot demand for rent for more than two months as security deposit.
- Restrict frequent rent hikes:- Throughout the rent agreement or lease period, homeowners cannot increase their rent. The homeowner must give the tenant three months’ prior notice before increasing rent.
- Stop’s homeowner’s invasion:- The homeowners entering premises whenever and wherever they want, is a frequent complaint of various tenants. To prevent this from happening, the policy says owners must give 24 hours written notice before visiting. In addition, they can not come after 8 pm and before 7 am. Also, if there is a dispute between a tenant and homeowner of some nature then the homeowner cannot cut water and power supply to tenants.
- Responsibility of structural maintenance:- While the policy states that both parties will be responsible for maintaining the leased property. However the responsibility for maintaining the property structure lies on the owner. In case of any repair or replacement work, the owner must give a prior 24 hours notice to the tenant.
How does Modern Tenancy Act help landlords?
- Overstaying of tenants:-
Now tenants who do not follow or do not comply with the tenancy clause, like staying longer than specified in the lease period. Or late payment of rental payment will be fine heavily. Especially in case of a delay in the stay even after the expiration of the lease. The tenant must compensate the homeowner by paying a double rent for 2 months, which in some cases can increase up to 4 times.
- Subletting the home/flat
The tenant is not allowed to sublet all or part of the rental property without prior permission from the owner.
- Eviction of tenants made easier
According to the model tenancy act 2021, homeowners can apply for the right of rental for eviction in the rent court, if tenants have not paid their rent for two consecutive months.
Opinions of real estate experts on the Model Tenancy Act 2021:-
Improves quality of housing.-
Ramesh Nair, former CEO, JLL India said. Housing for everyone cannot succeed without a strong rental housing model. The Model Tenancy Act not only reduces the slums quantity but it also improves the quality of housing. All government efforts have focused exclusively on home ownership.
Build better tenancy market.-
Managing Director of Poddar Housing and Development, Rohit Poddar said. The Act will regulate and promote rental housing and play a critical role in increasing the supply of rental housing. This will become an important requirement in the near future as the population grows. The rental terms are clear to both tenants and homeowners and reduce a number of disputes due to unwritten agreements. So, the decision benefits both tenants and homeowners. The Act will also improve the growth of the rental housing market in India as a whole.
Encourage Investors participation.-
Managing Director and Chairman of Knight Frank India, Shishir Baijal said. GST, REIT, RERA, and now tenancy laws will help transform the real estate sector into a more transparent and consumer-oriented sector. Thus, attract the best investors and institutional developers in the world to wider participation in the country’s real estate sector.
The Act contains provisions that regulate the rights and obligations of both homeowner and tenant. We believe that this law is a step in the right direction and we are pleased that the law has become a fundamental reality during the pandemic time.
Increased trust between tenants and homebuyers.-
Vice-Chairperson and Sr VP of NAREDCO, Manju Yagnik said. The Model Rental Act will undoubtedly be a game changer, resulting in increased trust between homeowners and tenants. This helps to create a suitable rental market without ambiguity. With the formation of a separate leasehold and tenancy law there will be a speedy resolution of disputes. In the short term, this law will lead to an increase in the supply of rental housing. It benefits all those seeking to migrate in search of work to an urban area.
Create new rental housing.-
National President of NAREDCO, Niranhan Hiranandani said. A new law is needed to make life easier for tenants, landlords and investors. The Model Tenancy Act 2021 will help reform the legal framework for rental housing across the country, thus helping in stimulating overall growth.
The law will make it easier to remove the blocking of vacant rental homes. This is expected to provide impetus to private sector participation in rental housing as a business model to tackle the huge housing shortage. The law will institutionalize rental housing and gradually push it towards the formal market. This Act ensures the creation of new rental housing for all segments of the population and tackles the challenges that housing seekers face.